College Costs Level Off as Use of Savings Plans Rises

Average spending on college for the recent academic year leveled out to $21,178, as the use of college saving plans increased to its highest level ever, according to an annual report by Sallie Mae, a financial services company specializing in education.

The report, called "How America Pays for College 2013" and released Tuesday, found average college spending declined since 2010, when families paid a peak of $24,097. Like last year, the report is based on survey results of about 800 undergraduate students ages 18 to 24 and parents of undergraduates.

Since Sallie Mae (SLM) released its first report six years ago, families have spent more on college, but with the recession, families became more cost-conscious, said Sarah Ducich, senior vice president for public policy at Sallie Mae.

While tuition has risen, the amount families spend has leveled off because of the choices they are making, she said.

For example, for the 2012-13 academic year, one-fifth of parents increased work hours or earnings to help pay for college in 2013, down from 24 percent in 2012. Forty-seven percent of students increased their work hours in 2013, and 27 percent chose to accelerate their course work to spend fewer semesters earning a degree, in an effort to spend less on college overall.

For the recent academic year, 52 percent of families eliminated certain schools from their selection decision because of how expensive they are, the highest percentage Sallie Mae has seen.

The typical family uses six sources of funds to pay for college, says Sallie Mae. For the recent academic year, the average family depended the most on grants and scholarships, which paid for 30 percent of college costs.

The following list comprises the whole pie of the average percent of total cost paid from each source:

Grants and Scholarships: 30 percent

Parent Income and Savings: 27 percent

Student Borrowing: 18 percent

Student Income and Savings: 11 percent

Parent Borrowing: 9 percent

Relatives and Friends: 5 percent

It's not just low- and middle-income families making choices to cut costs. Overall, 57 percent of the survey respondents said a college student is choosing to live at home to cut housing costs, up from 51 percent last year.

"I think it's been striking more than half of low income families and close to middle income families live at home. It's just one of the ways you save money to go to college," said Ducich.

But this year, a striking 50 percent of high household incomes of $100,000 and above said a college student was living at home, a jump from one in four college students in that household income range who lived at home four years ago.

Parents are willing to stretch their budgets and limits as much as they always have, but stagnant income levels have solidified their upper limits, said Cliff Young, managing director of polling at Ipsos and a co-author of the study.

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"Generally, before the recession, families could take risks like using home equity," he said. "Post-recession, a family stretches to keep kids in school and over the course of the last three years, there have been decreases in how much parents have been spending."

Ducich said because parents are "taking control" of their college investment choices, they are reporting that they are less worried about rising cost of tuition and other college-related expenses.

When asked if parents reflected worry over the increase in federal student loan interest rates, Ducich said parents are focused on the overall cost, and not just rates.

But while students and families are not obligated to pay back federal student loans until after they leave school, Ducich encourages families to begin paying back while students are in school if they can.

Twenty-two percent of families report they are paying student loans while they are in school to reduce the cost, according to the Sallie Mae survey.

One solution is to take advantage of some of the loan forgiveness opportunities that are already out there. The military, the federal government, and state governments offer dozens of programs that will wipe away at least part of your debt, in return for a few years of service. Most are tied to specific, in-demand professions in areas such as health care, law enforcement, and education. but others -- like the military, the Peace Corps, and AmeriCorps -- are open to people from a variety of majors and disciplines.

American Student Assistance, a nonprofit group that helps people manage their student loan debt, has produced a free list of occupation-based loan forgiveness programs. It's worth a peek -- even if you don't plan to become a firefighter, policeman, speech therapist or social worker.

Several programs will allow you to structure your repayment of federal student loan debt based on your income. For example, if your loan payments are more than 15 percent of your discretionary income, you may qualify for income-based repayment, under which your monthly payment calculated based primarily on what you earn, and after 25 years of payments, any remaining money owed gets forgiven. Other programs, including income-contingent repayment and pay-as-you-earn forgiveness, are pegged to different income levels.

Nobody wants to die, go through bankruptcy, or suffer a total and permanent disability. However, if you experiences one of these life events, your federal student loans will be discharged. The banks behind private loans, however, may still go after your cosigners in an attempt to recoup their losses.

Assuming you're not a too-big-to-fail bank, the idea of going deeper into debt in order to make more money may sound counterintuitive. However, in many fields, a graduate degree can vastly increase earning power. "What's It Worth," a publication of Georgetown University's Center on Education and the Workforce, ranks graduate programs by their return on investment. Not surprisingly, degrees in medicine, the social sciences and hard sciences top the list.

Ultimately, student loans are like any other debt: Getting out from under them requires that you understand your situation and keep your focus on repayment. In this regard, the best advice is also the most obvious. First, be aware of how much money you owe and what the interest rates are on each of your loans. Work on paying off the highest-interest loans first, while making minimum payments on the rest of your loans. As you pay off each loan, take the money that you were spending on it and roll it over onto your highest interest loan.

But, while discipline is good, it's also important to reward yourself. Paying off loans is a big deal: give yourself a nice present every time you put one to bed!